Develop Your Small-Business Financial Plan
Your business plan absolutely has to include a complete financial picture of your company — including planned income, estimated balance sheet, and cash-flow projections. No ifs, ands, or buts. Your financial reports provide the navigational tools that you need to keep your business on track, plus they provide the essential information that bankers and other supporters need to see and monitor.
Whether you’ve run a business before or not or whether you’re starting a brand-new venture or are expanding an existing enterprise, when you’re estimating how much money you need in the bank, unknowns are everywhere, and the guesswork is tough. But estimating how much you need gets a little easier if you focus on two kinds of spending:
One-time start-up costs: Every small business faces a long list of items that you have to spend money on only once just to get up and running — everything from a business license, start-up furnishings and equipment, and introductory marketing materials to that Grand Opening promotion you’ve planned.
Regular monthly expenses: After you’re open for business, you have all sorts of ongoing expenses to deal with, from paying salaries to buying supplies. Over time, of course, you expect your sales revenue to cover these expenses.
That situation doesn’t happen overnight, so you have to set aside funds with which to pay the bills in the early tough-sledding period. Having a three- to six-month cushion is a good place to start, but how long you’ll need a cushion depends on what business you’re in.
For a good idea of what size bankroll you’ll need to finance your small business start-up, first detail your estimated start-up costs. Next, estimate the ongoing monthly expenses you expect to incur and multiply by the number of months you think will pass before your business is bringing in sales revenue sufficient to cover its overhead.
Add the two totals together, and the resulting number is the financial cushion you need to start out with in order to have cash available when you need it.
Use the figures you come up with as a starting point for developing the financial statements that you include in your written business plan. Be sure that you accompany your financial forecasts with descriptions of the assumptions you made as you put the numbers down on paper.
For the IRS’s view on financial and tax matters, go to the horse’s mouth. Check out Business Expenses (IRS Publication 535), Tax Guide for Small Business (IRS Publication 334), and Small Business Tax Workshop Workbook (IRS Publication 1066). All three publications are available on the IRS website.
The Small Business Administration (SBA) has a mandate from Congress to help small businesses with their financial needs. In other words, the SBA exists to help small companies just like yours. The administration does its good deeds through a variety of programs, including
Loan programs: Although the SBA doesn’t make direct loans, it does work with lenders and other intermediaries to help small businesses secure the money they need.
Small Business Investment Company Financing: Privately owned and managed investment funds, SBICs are licensed and regulated by the SBA to invest in qualified small businesses. Like venture capital, the goal is to generate high returns for investors.
Surety Bond Guarantee Program: This program provides small and minority contractors with contracting opportunities by offering guarantee bonds for up to $2 million, covering bid, performance, and payment bonds.
To find out more about SBA programs, visit www.sba.gov.